IFPRI Discussion Paper, January, Nurul Islam (2011)

 The paper attempts to provide an overview of the trends in aid to agriculture over time, within the framework of changes in the pattern of total development aid. It seeks to examine the factors relating to the agriculture sector and the priorities and allocation processes of the total aid.

There has been much discussion regarding the causes of the slowdown in growth of world agricultural production in the developing countries in 2007 and 2008. Two components which have significantly affected this trend have been identified. One is the contribution of foreign aid to agriculture and the other is domestic agricultural spending. The aftermath of the 1973-74 food crisis witnessed the importance of addressing this issue, where major international organizations like the United Nations Food Agricultural Organization and others called on donor countries to increase the flow of aid to agriculture. The latest food crisis of 2007-08 saw increasing appeal for more aid to agriculture. The international attempts to counter this issue have been based on a set of assumptions: (i) the flow of aid and domestic spending on agriculture has been declining for the past two decades, and (ii) developing countries have to increase their investment in agriculture greatly. The author investigates the trends in the provision of aid to agriculture over time, against the backdrop of changes in the pattern of sectoral distribution of total development aid.

The author states that the analysis of agricultural aid flows during the last few decades has been hampered by the lack of consistent data. The data on total and agricultural aid flows have been obtained from the Organization for Economic Cooperation and Development’s Development Assistance Committee (OECD/DAC).

The author reveals that the share of aid to agriculture in total aid has increased from 13 percent in 1973-1975 to around 23 percent in 1979-1981. He attributes this increase to the 1974 World Food Conference in the aftermath of the 1973 food crisis. From the mid 1980s however, the share of agricultural aid has declined until it reached 5.5 percent during 2003-2005; although another food crisis in 2007-2008 saw an increase to 6 percent. The author then provides an overview of the trends in selected subsectors of agriculture over time. He finds that agricultural land and water development and management comprised the largest share of aid to agriculture from the 1980s to 2008. For instance, the share of irrigation varied between 19 percent and 39 percent during the early 1990s and between 18 percent and 20 percent during the 2000s. However the author states that many donors do not favor large scale irrigation projects such as reservoirs and dams as they are not considered to be practical water management systems for poor farmers; therefore there has been a shift towards funding for small-scale projects.

Other findings reveal that aid for the purchase, marketing and distribution of agricultural inputs like fertilizers suffered a decline over time as such activities were considered appropriate for the private sector. A similar trend was observed for crop production of export and food crops, the share of which declined from 11 percent during the 1970s and early 1990s to 5.1 percent in 1995. The share of agricultural research went up from 3.3 percent during the late 1970s to 10 percent in late 2000s. Provision of aid for agricultural credit to farmers, which also includes the strengthening of credit institutions, was important in the 1970s and 1980s. However problems arose from the effective delivery of credit in terms of defaults and non-repayment due to crop failures or a fall in prices. The government policies in some countries for writing off debts from farmers further encouraged the incidence of defaults and hence threatened the viability of such credit institutions.

 As such, this adversely affected the inflow of aid in support of agricultural credit.

The author then states that two new items of agricultural aid has been developed: (i) aid for agricultural policy and administration and (ii) alternative development. The first component includes aspects like aid to agricultural ministries, institutional capacity building, human capital etc. while the second item includes projects aimed at discouraging the cultivation of illicit drugs and diverting farmers towards the production and marketing of alternative crops.

The author provides several rationales for the changes in item-wise composition of aid to agriculture over time.  Firstly, the author discloses that the rise and fall in aid to agriculture was similar to the pattern of total aid to all sectors. Another explanation was that the share of aid to investment in economic and physical infrastructure has instead been increasing over time; this implies that increasing investment in rural roads and rural electrification contributes to an increasing access to markets for farmer outputs and inputs. Therefore agricultural production is benefitted indirectly. A similar conclusion can be drawn from increasing aid in the social sectors of population and water supply – such programs had indirect beneficial impact on agriculture. The author also highlights the poor performance of the agricultural sector’s aid financed projects; numerous reports have mentioned that there have been long delays in completion or partial completion in such projects. Also significantly, the institutions in charge of implementing projects were poorly managed – these limitations meant that large-scale aid efforts could not be launched. Finally, the author notes that the share of agricultural in GDP could have determined allocations of aid to agriculture. He states that over the years, the share of agriculture in GDP in low income countries has declined, which meant that the share of agriculture in aid may have declined across countries and over time. Although not conclusive, it would appear that on the basis of the data, donors might consider the share of agriculture and public expenditures as a share of GDP to allocate aid to agriculture.

Overall, the author points out that the donors are increasingly providing assistance to build or improve institutions and human capital so that they can implement agricultural programs effectively. Therefore it is necessary to examine the decline in aid to agriculture in the context of assistance to institution building so that national and local governments and agricultural agencies can design, experiment and select projects that suit the local circumstances.